If you’re getting ready to purchase a new or used car, you might be wondering about the steps you’ll take next. Hunting for your next car is exciting, and maybe you’ve already started looking around, deciding what type you want.
However, if your credit is not so good, that might be pressing on your mind. You might be wondering how bad credit could affect your credit and your purchase. Will you still have options to pursue buying a vehicle? Financing a car with bad credit in Grand Forks, North Dakota, has its challenges, but it’s still possible with the right plan. Here are tips to help you purchase a car in the Grand Forks area if you have bad credit.
What Is Considered Bad Credit?
Before you start worrying too much, it’s helpful to know what’s considered bad credit for an auto loan. Here’s a breakdown of Experian’s credit score ratings:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Exceptional
Every institution has its own guidelines for determining what type of credit score they want in order to give you a loan. Most auto lenders want you to have a score of 660 or above — at least if you want the best interest rates. In fact, even a score below 700 may require explaining any negative marks on your record. That doesn’t mean you can’t get a loan with a lower score, but it will cost you more interest and a higher monthly payment.
What Impacts My Credit Score?
Five main factors go into determining your credit score. These are:
- Payment History: Do you pay on time?
- Length of Credit: Have you had your credit long, or are you just getting started?
- Amount of Debt: Do you use most of your credit, or is your credit utilization ratio below 30%?
- Credit Diversity: Do you have a variety of credit, such as credit card, mortgage, personal loan, car loan, and so on? This only accounts for 10% of your overall credit score.
- New Credit: Have you been opening many new credit lines lately, or have you had a lot of hard inquiries on your credit? This accounts for 10% of your overall score.
Financing a Used Vs. New Car With Bad Credit
If you have a lower credit score, the process for purchasing a vehicle will be slightly different from what it is with a good score. The auto dealer will search for lenders who are willing to work with your credit situation. Next, the lender will let the dealer know how much they will loan you, giving you an idea of the monthly payment. Once you have this information, you can look for vehicles that fit this parameter.
Of course, your options will be limited based on the total amount you are able to borrow. Also, if you decide you want a 36-month loan term instead of a 60- or 72-month agreement, your monthly payment will be higher. This could affect your decision about financing a used vs. new car. Used cars will cost less, so you’ll have more options, making them a great choice if you have bad credit.
Another benefit of financing a used vs. new car with bad credit is that your monthly payment will also be lower. This makes the loan payments more manageable for you as you work to build up your credit score.
Some people might be hesitant at first about purchasing a used car, but you might be able to find a used vehicle that has low mileage and very little wear and tear. Also, even a car that’s only one or two years old will cost significantly less than a brand-new one. Cars depreciate the minute they are driven off the car lot. So, you can expect to see substantial savings with a used car.
Other Steps to Take if You Have Bad Credit
You can take other steps if you know your credit score is bad. For one thing, putting a large down payment on a used car will help. It will reduce your overall costs, and it will show lenders you’re responsible enough to have some money put away. Your monthly loan payment will be lower, making you less of a risk to lenders.
Make sure you work with an auto dealership that’s able to offer you financing even if you have bad credit. You shouldn’t have to pay added fees or hidden costs to finance a used car if you’re dealing with a reputable used car dealership. Some dealerships even specialize in helping people get another vehicle even when they’ve had issues with their credit.
Finally, you could always consider getting a cosigner for the loan. A cosigner is someone who agrees to take responsibility for the loan if you default on it. This would have to be someone you are close to and someone who trusts that you will repay the loan. Having a cosigner can help increase your score — just make sure you use someone with stellar credit. Keep in mind that a cosigner is not a co-owner of the car, so you’ll have full rights and ownership of it once it’s paid off.
Next Steps for Purchasing a Car
Now it’s time to take the next step in your journey to purchasing a car. You can save yourself some hassles by checking your own credit report to see if there are any errors on it. The credit reporting bureau allows you to pull your credit report at least once a year for free.
Once you’ve made sure your credit report is error-free, take a ride to Rydell Outlet Center in Grand Forks and have a look at our selection of used cars. You can find many options for under $10,000. Whether you’re looking for a car, truck, or SUV, check out financing a used vehicle.
Get in touch with a car sales associate at Rydell Outlet Center to discuss financing a car if you have bad credit. We’re here to do business with you today!
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